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Short abstract

This proposal argues that the "AI Cold War" is fundamentally a performance of sovereignty, where nation states signal control over emergent technologies while global, decentralised infrastructures simultaneously undermine their authority.

Long abstract

This proposal argues that the “AI Cold War” is a performance of sovereignty: nation states signal control over emergent technologies while global, decentralised infrastructures undermine their authority. It looks at “Shadow Financial Stacks,” AI-enabled crypto-laundering used by non-state and sanctioned state actors (e.g., Lazarus Group, APT38). These stacks expose the “hollowness of sovereignty” by showing how national regulations (e.g. the EU’s MiCA) become signals in a borderless digital landscape. The core tension is between state control and the algorithmic agility of illicit networks. I propose an AI simulation actor, “The Algorithmic Insurgent,” representing a decentralised terrorist-financing cell programmed with evasion logic to show how illicit flows exploit seams between regulation and permissionless blockchain infrastructure via a three-layer “Shadow Stack”: (1) AI-generated synthetic transactions that flood monitoring systems with legal-looking micro-transactions; (2) cross-chain bridging and chain-hopping to move funds across blockchains and break audit trails; and (3) sovereign evasion tokens anchoring value in state-backed tokens or privacy-enhanced stablecoins to bypass sanctions. The agent’s knowledge base draws on 2025/2026 inputs: TRM Labs’ 2025 policy review on regulatory arbitrage; FATF’s Handbook on International Cooperation (Sept 2025) on informal cooperation gaps and Travel Rule challenges for unhosted wallets; analysis of the “A7 Cluster” blockchain; and the “Bybit Mega-Hack” (Feb 2025). During deliberation, the agent attempts to launder simulated funds, challenging a “Swiss Vault” neutral compute hub and US/EU policy agents by exploiting MiCA gaps and evading US transparency via chain-hopping, testing whether sovereignty is enacted or merely performed